STOCKHOLM, Sweden, Feb. 13, 2002 (PRIMEZONE) -- Drott AB (Stockholm:DROTa) today announced results for the year ended 2001.
Operations (excluding result from property sales and nonrecurring items):
-- Profit before tax: SEK 886 M (860)
-- Cash flow per share: SEK 12.00 (10.34)
Profit
-- Profit before write-downs and tax: SEK 1,496 M (1,364) Write-downs: SEK -389 M (-) Tax: SEK -257 M (-376) - Profit after tax for the year: SEK 850 M (988) - Earnings per share: SEK 8.99 (9.78)
Increased dividend and new share repurchase mandate
-- Proposed dividend: SEK 5.00 per share (4.00) - Proposal: Retirement of repurchased shares and new mandate to repurchase shares
Drott owns commercial and residential properties in regions and metropolitan areas with faster long-term growth than the rest of the country. Three-quarters of rental revenues are from the Stockholm region, and the rest from the Oresund and Gothenburg regions. Appraised property values: SEK 39.3 billion. 431 employees. More than 50,000 shareholders. Market capitalization of over SEK 10 billion (excl. repurchased shares).
SUMMARY
Since its listing in 1998, Drott has acquired a considerable office and residential portfolio, primarily in Stockholm. In addition to property acquisitions totaling SEK 32 billion, Drott has invested SEK 3 billion in new construction and renovations of its properties and SEK 1 billion to repurchase its own shares. Properties with poorer rental potential have been sold. Total property sales amount to SEK 12 billion.
The long-term growth curve is steeper for the Stockholm region than the rest of the country, but it is also more volatile. 1998-2000 was a period of very high rental increases and value appreciation in Sweden's metropolitan regions -- in Stockholm, market rents actually doubled for certain office properties. In 2001, economic conditions declined substantially, but Sweden's GNP growth remained positive. Percentage- wise, the Stockholm region -- after three years of strong rental growth -- noted a weaker rental trend than other metropolitan regions.
Market rents for offices fell during the year in Stockholm, especially prime rents in the CBD of the city. In some market sectors, however, market rents remained steady, e.g. in Marievik, where leases on office space are still being signed for around SEK 2,500/sq. m. Kista is experiencing an imbalance between supply and demand, which has adversely affected its market rental rates. In Gothenburg and Malmo, the rental market is fairly stable. Residential rents in Stockholm, Gothenburg and Malmo are still rising slightly and demand is strong.
The consensus among economic forecasters is that the strong GNP growth in 1998-2000 will be followed by a new growth phase beginning in 2003, after two mediocre years, 2001-2002. When economic growth rises, Drott's rental potential will be significant. However, the timing and extent of such growth naturally cannot be predicted with certainty.
2001
During the year, Drott sold properties for a net of SEK 3.6 billion and in the process left 37 municipalities. Now, 75 percent of Drott's rents are from the Stockholm region and 97 percent from the three major metropolitan regions. Compared with the portfolio at the time of the listing, today's holdings are more selective and have considerably higher rental potential.
During 2001 the economic slowdown resulted in both a higher cost of capital and declining building right values. The telecom sector's cutbacks in Kista have caused the value of vacant office space to decline substantially.
Drott's properties have been independently appraised at SEK 39.3 billion as of December 31, 2001. The change in value for like-for-like portfolios was -0.9 percent. In the case of a limited number of Drott's properties, the appraised value is below book value. For these properties, Drott has decided, in accordance with recommendation RR:17 of the Swedish Financial Accounting Standards Council (applied as of 2002), to book accounting write-downs. The amount of the write-down -- a total of SEK 389 M, of which SEK 129 M in Kista -- is being charged against 2001 profit.
For the property portfolio as a whole, appraised value exceeds book value by SEK 4.3 billion.
Drott's residential properties continue to appreciate in value. Drott chose to scale down its sales of residential properties to established housing cooperatives during the year. These properties could be converted into cooperatives at prices exceeding their appraisal value, but by remaining within Drott they contribute -- by way of value appreciation, leverage opportunities and low interest margins -- to a good return on equity.
Profit from operations
Profit from ongoing property management operations rose to SEK 886 M before tax (860), in line with the forecast issued in the nine-month report on October 26, 2001. Cash flow per share rose to SEK 12.00 (10.34) -- an increase of 16 percent.
Total profit
Profit before tax amounted to SEK 1,107 M (1,364). Compared with the previous year, profit was positively affected by higher profit from operations and higher gains on property sales, while nonrecurring items (mainly write-downs of property book values) negatively affected profit.
Tax situation
In 2001, Drott acquired companies with significant tax loss carryforwards. As of December 31, 2001, Drott had tax loss carryforwards totaling SEK 3.3 billion. The acquired tax loss carryforwards did not affect profit and cash flow in 2001, but will significantly reduce the tax charge in the years ahead.
Dividend and share repurchase
The Board of Directors proposes that the dividend be raised to SEK 5.00 per share (4.00). The dividend corresponds to nearly 60 percent of profit from property management operations after tax.
With regard to the shares Drott has repurchased, it is proposed that they(a) be retired and that the Board of Directors receive a new mandate to repurchase 10 percent.
(a) Excluding 550,000 shares that ensure the company's commitments to options holders.
The future
Profit from operations will be affected by many factors in 2002.
A positive factor for profit is that rents continue to rise for residential and commercial properties -- Drott's average rents are still lower than current market rental rates. Lease renegotiations will therefore lead to higher rents, and current leases are fully or partially indexed. Moreover, tenants will move into four newly built properties during the year, which will have a further impact next year.
Since its listing, Drott has divested properties with high risk/low rental potential (and thus a high direct yield). In 2001 alone, Drott sold non-prioritized properties corresponding to ten percent of its portfolio, which will negatively affect profit in 2002.
Drott has also decided to invest in several properties, which will have to be vacated for extensive renovation -- investments that provide good potential for future rental increases and value appreciation but in the short term affect profit.
The economic slowdown will affect 2002 profit through a slightly higher vacancy rate and higher costs for tenant modifications.
Furthermore, Drott's interest expense for repurchased shares has negatively affected profit in absolute terms.
As a whole, the above factors will mean that profit before tax for the year is expected to be lower than in 2001.
PROFIT AND CASH FLOW
Profit 2001 Ongoing Result Non- Total
See property from recurring
SEK M page management property items
6 operations sales
Rental revenues I. 3,788 - - 3,788
Operating expenses -1,440 - - -1,440
Operating surplus II. 2,348 - - 2,348
Depreciation -340 - - -340
Central expenses -90 - - -90
Result from property
sales - 508 - 508
Items affecting III.
comparability - - 102 102
Operating profit
before depreciation 1,918 508 102 2,528
Net financial items IV. -1,032 - - -1,032
Profit before write-
downs & tax 886 508 102 1,496
Write-downs V. - - -389 -389
Profit before tax VI. 886 508 -287 1,107
Current tax -922 -1963 -3 -291
Deferred tax -156(b) 135(c) 55 34
Profit after tax VII. 638 447 -235 850
Tax
(current+deferred) -2482 -613 52 -257
Tax/profit before tax 28% 12% 18% 23%
Ongoing property
Cash flow 2001 management operations
SEK M
Profit before tax 886
Current tax -92
Profit after current tax 794
Reversal of depreciation 340
Cash flow 1,134
Cash flow per share, SEK 12.00
(94.5 mil. shares)
(b) Due to the opportunity to utilize fiscal accelerated
depreciation, allocations to the tax allocation reserve and tax
loss carryforwards, the current tax on profit from ongoing
property management operations amounted to only SEK 92 M.
Including a deferred tax expense of SEK 156 M that has no effect
on cash flow, the total reported tax charge is 28 procent for
ongoing property management operations.
(c) The total tax charge on the property sales is limited to SEK 61 M
due to a) sales via companies, and b) previous allocations for
deferred tax. (The fiscal residual value of Drott's properties is
less than book value. Due to this deviation, Drott has allocated
a provision for deferred tax in the balance sheet). When Drott
sells the properties, a current/actual tax charge arises, while
the deferred tax provision for these properties is reversed/taken
up as revenue.
The full text of this release including financial tables and summary information indicated in the above chart is available at the following links:
http://www.waymaker.net/bitonline/2002/02/13/20020213BIT01250/bit0002.doc
http://www.waymaker.net/bitonline/2002/02/13/20020213BIT01250/bit0002.pdf
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